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April 17, 2007

Cal Supremes Mnemonic: Class Before Merit

It appears the old maxim about not putting the cart before the horse applies to class actions, too. Most of the time, that is.

On Monday, the California Supreme Court ruled that in normal situations, judges should decide whether to certify class actions before making any rulings on the underlying merits.

“In an individual case, compelling justifications may exist that will support a trial court’s decision to depart from the usual order,” Justice Kathryn Mickle Werdegar wrote for a unanimous court. “Absent a finding of a compelling justification, however, for the trial court to refuse the defendant’s request to resolve class issues before merits issues is an abuse of discretion.”

Gonzalez had sought class certification on behalf of everyone who believed they were wrongfully charged for unearned finance charges during vehicle repossessions by Fireside Bank.

Werdegar’s ruling pointed out that deciding class certification first heads off “one-way intervention,” or in other words, situations in which plaintiffs not yet bound to the litigation elect to stay in a class after favorable rulings on the merits, but opt out after unfavorable ones.

“To prevent one-way intervention,” Werdegar wrote, “courts must ensure that affected parties are bound before the merits are decided; to bind absent plaintiffs, courts must give them notice; and to give plaintiffs notice, courts must first resolve whether and on what scale a class is appropriate.”

Nonetheless, the high court gave Judge McKenney a pass. Although there was “no justification at all” for his ruling on the merits, Werdegar wrote, Gonzalez’s class action shouldn’t have to suffer for his error.

“Instead,” she held, “vacating the trial court’s premature merits ruling and ordering the trial court to disregard it and decide any future motion de novo will reduce the risk of one-way intervention for Fireside Bank without unduly punishing plaintiffs.”